Open AccessHiring the Right CEO: How Does the Type of CEO Industry Experience Affect Firm Performance, Firm Risk-Taking Behavior, and CEO Compensation?
Author(s) -
Candra Chahyadi,
Trang Doan,
Junnatun Naym
Publication year - 2021
Publication title -
international journal of business and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.236
H-Index - 15
ISSN - 1511-6670
DOI - 10.33736/ijbs.3762.2021
Subject(s) - business , executive compensation , compensation (psychology) , affect (linguistics) , accounting , industrial organization , monetary economics , economics , finance , corporate governance , psychology , communication , psychoanalysis
This paper examines how the type of CEOs’ industry experience (whether a CEO has cross-industry or specific-industry experience) on firm performance, firm risk-taking behavior, and their own compensation. We find that CEOs with cross-industry experience tend to relatively lower the firm performance as well as invest less on R&D. On the other hand, CEOs with specific-industry experience lead firm to higher performance and invest more on R&D expenditures until it reaches a certain threshold, especially among high-growth firms. Total compensation paid to the CEO does not seem to be affected by the type of CEO industry experience. This paper contributes to the literature that examines the impact of CEO characteristics on firm outcomes and CEO compensation. One important business application of our paper is that to optimize firm performance, firms should hire CEOs with the length of specific-industry experience not beyond the threshold levels.